Dec 24, 2015
Chapter 13
Prepared by Richard J. Campbell
Copyright 2011, Wiley and Sons
Auditing Human ResourcesProcesses: Personnel and Payroll inService Industries
Learning Objectives1. Be familiar with the human resources
activities in a public accounting firm.
2. Learn the activities, transactions, risks, ICFR, and documents related to human resources. Recognize the impact of relevant accounting standards on the activities and transactions.
3. Understand the general structure and activities of outsourcing the payroll function to an outside service provider.
4. Understand the meaning and value of both types of service auditor (SAS 70) reports, how they may provide audit evidence, and under what circumstances more audit evidence is needed.
Chapter 13-1
Learning Objectives
5. Link the management assertions, purposes of specific controls, controls, and tests of controls for human resources.
6. Describe the purposes and execution of related substantive audit procedures for human resources accounts and disclosures, including dual purpose tests, substantive analytical procedures, and details of balances.
Chapter 13-2
OVERVIEW
Learning Objective #1Chapter 13 -4
Regardless of the industry, personnel functions include maintaining personnel records and performing administrative responsibilities for benefit plans.
Payroll functions involve calculating, processing, and posting employee compensation and other related expenses and liabilities
HUMAN RESOURCES ASPECTS OF PUBLIC ACCOUNTING
Chapter 13 -6 Learning Objective #1
Hiring information is collected in the employee’s personnel file.
The information added to the payroll master file includes the employee’s name, contact information identification number, rank or staff classification, department, salary, and deduction information.
With this information the payroll processing system is able to calculate and generate a salary payment for the employee
This information is integrated with the engagement management system
Time and Expense Report Input toEngagement Management
Learning Objective #1Chapter 13-10
EXHIBIT 13-3
BUSINESS PROCESSES, DOCUMENTS, AND INTERNAL CONTROLS
Learning Objective #2Chapter 13-11
Management objectives related to payroll center around paying employees accurately, paying other entities for payroll-related liabilities as required, satisfying reporting obligations imposed by government, and accounting for the various transactions properly in the accounting records and financial statements.
In service industries, human resources expenses may be the largest expense incurred.
Employees document information regarding their identification and status for taxes on W-4 forms.
Potential Misstatements and Controls
Chapter 13 -16 Learning Objective #2
The major internal control concerns related to human resources and payroll are that payments are for valid transactions and are authorized.
To accomplish the payroll controls objectives, the company must have policies and procedures in place regarding human resources.
Check-in and check-out functions can be punching a time clock or logging in and out on a computer terminal.
USING AN OUTSIDE SERVICE PROVIDER FOR PAYROLL
Learning Objective #3Chapter 13 - 17
Many organizations use an outside service provider to perform the calculations and prepare the records associated with paying employees.
The services typically provided by external payroll processing service organizations include: Updating the payroll master file Keeping track of current and year-to-date information by
employee as well as for the company as a whole Preparing documents and forms required for tax purposes
such as W-2 forms and quarterly payroll tax returns Submitting information for general ledger entries back to
the organization
Outputs of the Service Provider
Learning Objective #3Chapter 13 - 18
The output can be provided in either electronic or hard-copy form: Updated payroll master file Payroll register or journal Deduction exception report Management summary Labor cost report
User Company Controls
Learning Objective #3Chapter 13 - 20
Employee-Related Controls Input and Submission Controls Controls for Correcting Processing
Errors Output-Monitoring Controls
REPORTS ON THE PROCESSING OF TRANSACTIONS BYA SERVICE ORGANIZATION
Learning Objective #4Chapter 13 - 21
If the services affect any of the items in the following list, the service provider is considered a part of the entity’s IT system. Classes of transactions significant to the financial
statements Procedures of initiating, recording, processing and
reporting transactions Accounting records, supporting information and
specific accounts related to the entity’s transactions and financial statements
Method of capture of events and conditions significant to the entity’s financial statements
The financial reporting process leading to preparation of financial statements, including estimates and disclosures
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 22
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 23
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 24
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 25
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 26
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 27
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 28
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 29
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 30
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 31
EXHIBIT 13-6
TESTS OF CONTROLS FOR HUMAN RESOURCES TRANSACTIONS
Learning Objective #5Chapter 13 - 32
EXHIBIT 13-6
Examples of Tests of Controls for Payroll Transactions
Learning Objective #6Chapter 13 - 36
EXHIBIT 13-8
Examples of Tests of Controls for Payroll Transactions
Learning Objective #6Chapter 13 - 37
EXHIBIT 13-8
Examples of Tests of Controls for Payroll Transactions
Learning Objective #6Chapter 13 - 38
EXHIBIT 13-8
Review Question
Chapter 13-43
In which type of organization would anauditor expend more audit effort addressingwhether payroll costs were posted to the properaccount?(a) Not-for-profit(b) Service(c) Retail(d) Manufacturing
Review Question
Chapter 13-44
Which department should control theinformation on employees’ checking accountswhen the employees have provided authorizationto the employer to pay them by direct deposit?(a) Personnel(b) Treasurer or cashier(c) Accounting and payroll(d) Line department for each employee
Review Question
Chapter 13-45
Which of the following is not a serviceindustry?(a) Banking(b) Health care(c) Textbook publishing(d) Public accounting
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